Home-based and ecommerce businesses often have the same business license requirements as traditional, commercial, brick-and-mortar establishments.
This article will explore some of the obvious — and not-so-obvious — rules and regulations that are frequently imposed on home-based or online businesses. It will also touch on considerations that are specific to operating a commercial enterprise in a residential area, such as zoning restrictions.
Do you need a business license to sell online or to operate a home-based business?
Because online businesses and home-based businesses operate with the goal of generating revenue by selling goods or services to the public, most of the rules designed to guard the public and to collect tax revenue apply. This includes obtaining required business licenses, permits, and zoning approvals in order to operate your business legally and to avoid fines and penalties.
(This is in addition to fulfilling any required steps if you are incorporating or forming an LLC such as having a registered agent and obtaining an EIN.)
If you are considering an online or home-based business, then it is important to do your research. Obtaining business licenses, permits, and zoning approvals can be a time-consuming process, but a necessary one. If you engage in business for which licensing is required and fail to comply, you risk fines and penalties, or having your operation shut down.
CT Corporation can assemble all the licensing applications and instructions you need to operate your online business legally Business Licenses Application Package.
Licensing considerations for home-based businesses
There are licensing rules that are triggered when a business is operated from a home (or in an area zoned as residential) and special considerations that come into play when it comes to the required permits.
Zoning restrictions and variances
If you plan to operate a business in an area that is zoned “residential”, you need to become familiar with the zoning ordinances. Certain business activities are prohibited in residential areas. For example, operating a website design company is likely to be permitted, but an auto repair shop may be prohibited.
Your first step is to contact your zoning office. It may be possible to comply with the restrictions with only minor tweaks to your business plan.
However, if your business doesn’t fall within the zoning laws, then you can seek the possibility of a variance. A zoning variance is a deviation or exception from the current zoning rules. Although there are some arguments you can make if you feel you must go the variance route, keep in mind that it might be better to tweak your business plan to fit the zoning requirements. The process of obtaining a variance can be a time-consuming and expensive, and there is no guarantee that the local government will grant you one.
CT tip: Be sure you are not violating the terms of your Homeowner’s Association (HOA) agreement, if applicable. Originally confined to condominiums and cooperatives, many single-family communities now have HOAs that govern what residents can, and cannot, do on or to their property. It may be necessary to get an exception or waiver of the rules.
Home occupation permit
Many city or county governments require home-based businesses to have a “home occupation permit”. These permits are designed to prevent a business from adding significant traffic, noise, or other environmental conditions such as dust or odors that would interfere with the surrounding homeowners’ use and enjoyment of their property.
As a result, most local ordinances describe the types of home-based occupations or businesses that are permitted and the limitations imposed on the operations. These restrictions often include:
- Amount of space that can be used within the home
- Number of clients or customers that can visit the home each day
- Number of vehicles that can be at the home
- Modifications that can be made to the property
- Number of employees the business can have
Note: In addition to obtaining a home occupation permit, your home-based business may also need to fulfill other licensing and registration requirements that apply to all businesses.
Remote employee license
A local jurisdiction may impose licensing and other requirements for an employee that is working from home. You may need to conduct license research at the city, town, or county level to determine if a home occupation or remote employee license and/or permit is required. For more information, see Remote employees and the regulatory implications for your business.
Signage
Most localities have signage restrictions. But, if your business is in a residential area, you are likely to face very strict limits on the size, number, and placement of signs on your property. You need to verify what you can and cannot display before installing any type of signage.
Business license and registration requirements (ecommerce, home, general)
Your business license, permit, and registration requirements depend upon several factors:
- type of business
- business structure
- whether you have employees
- geographic location of the business
The following licenses and registrations are not specific to home businesses or ecommerce businesses — they fall under the umbrella of general legal requirements for opening any type of business. (While few businesses will require all the registrations listed below, many will need to comply with more than one.)
Secretary of State registration
Forming a legal business entity such as an LLC or corporation involves filing with the state department that is responsible for business entity formation. This is generally handled by the Secretary of State’s office.
Employer identification number (EIN)
An employer identification number (EIN) is a business tax ID number issued by the IRS. An EIN is the business equivalent of a Social Security number and is used for tax filings. There are a number of reasons why your business may be required to have an EIN. For example, if you have employees, or if you are a corporation or an LLC with more than one member, you will need to obtain an EIN. You may also need an EIN before opening a business bank account.
